Missouri Subtractions

INTEREST ON EXEMPT FEDERAL OBLIGATIONS Interest from direct obligations of the U.S. Government, such as U.S. savings bonds, U.S. treasury bills, bonds, and notes is exempt from state taxation under the laws of the United States. Attach a detailed list or all Federal Forms 1099. Taxpayers who claim exclusion for interest from direct U.S. obligations must identify the specific securities owned, e.g., “U.S. savings bond”. A general description such as “interest on U.S. obligation” or “U.S. Government securities” is not acceptable. (See Missouri Regulation 12 CSR 10-2.150 for the taxability of various U.S. Government related obligations.) Failure to identify the specific security will result in the disallowance of the deduction.

STATE INCOME TAX REFUND Enter the amount of any state income tax refund included in your federal adjusted gross income on Form MO-1040, Line 1 (from Federal Form 1040 or Federal Form 1040-SR, Schedule 1, Part 1, Line 1). Attach a copy of Federal Form 1040 or 1040-SR (pages 1 and 2) and applicable schedules.

MILITARY RETIREMENT BENEFITS A military pension is a pension received for your service in a branch of the armed services of the United States, including the Missouri Army Reserve and Missouri National Guard. On Line 10, enter your total military retirement benefits reported on Federal Form 1040 or Federal Form 1040-SR, Line 5b.

PARTNERSHIP, FIDUCIARY, S CORPORATION, RAILROAD RETIREMENT BENEFITS, OTHER Enter subtractions, reported from partnerships, fiduciaries, and S corporations. The partnership, fiduciary, and S corporation must notify you of the amount of any such subtraction to which you are entitled. Enter amount on Line 11, select the boxes applicable on Line 11 and attach a copy of the notification received. Failure to attach a copy of the notification furnished to you will result in the disallowance of the subtraction.

Railroad Retirement Benefits Administered by the Railroad Retirement Board, such as all Tier I and Tier II benefits and any railroad retirement sick pay, disability, and unemployment benefits, included in federal adjusted gross income (Form MO-1040, Line 1), are exempt from state taxation.

Military Income of Nonresident Military Personnel. Enter the amount of any military income received by nonresident military personnel stationed in Missouri. Nonresident active duty military service-members who are required to file a Missouri return may subtract the military income received from their federal adjusted gross income. Nonresident service-members’ spouses who are in Missouri due to as their state of residence may subtract their income from their federal adjusted gross income. Attach a copy of the Form(s) W-2 reporting your military income.

Combat Pay Included in Federal Adjusted Gross Income Earned by Military Personnel with a Missouri Home of Record. The IRS allows enlisted members, warrant officers and commissioned warrant officers to exclude their military pay received while serving in a combat zone, or while hospitalized as a result of injuries incurred while serving in a combat zone. The exclusion of combat pay received by a commissioned officer, other than a commissioned warrant officer, is limited to the highest rate of enlisted pay Subtract all military income received while serving in a combat zone, which is included in Federal Adjusted Gross Income (FAGI) and is not otherwise excluded. In most cases combat pay is not included in Box 1, Wages, of Form W-2 and therefore is not included in FAGI. However if Box 1 includes combat pay, the portion consisting of combat pay may be taken as a subtraction for Missouri purposes.

Build America Bonds and Recovery Zone Bonds Interest. Enter any interest received from Build America or Recovery Zone Bonds that is included in your federal adjusted gross income. Attach a copy of your Interest Income (Form 1099-INT) or any other applicable documentation.

Missouri Public-Private Transportation Act. Enter any income received in connection with the Missouri Public Private Transportation Act, that is included in your federal adjusted gross income.

Net Operating Loss (NOL). Any amount of Net Operating Loss deduction taken against federal taxable income but disallowed for Missouri income tax purposes after June 18, 2002, may be carried forward and taken against any income on the Missouri income tax return for a period of up to 20 years from the year of the initial loss. Attach a calculation of your Net Operating Loss carryback/ carryforward or a copy of your Federal Form 1045, Schedules A and B.

Contributions into a Missouri Individual Medical Account (IMA). Contributions that were made by your employer into an Individual Medical Account (IMA) and used to pay your health care expenses are exempt from Missouri income tax. The interest income earned on the IMA account is also exempt from Missouri income tax. The IMA contribution is identified in Box 14 of your Form W-2, Wage and Tax Statement. Reduce the amount of contributions by the amount of medical and dental expenses deducted on Federal Form 1040 or 1040-SR, and included in Missouri itemized deductions.

Accumulation Distribution. If during the taxable year, you received a distribution as beneficiary of a trust that was made from accumulated earnings of prior years and you filed Tax on Accumulation Distribution of Trusts (Federal Form 4970), the amount of the distribution may be excluded from Missouri income to the extent that it was reported in your federal adjusted gross income.

Capital Gain Exclusion on Sale of Low Income Housing. If during the taxable year, you sold a federally subsidized (HUD) low income housing project to a nonprofit or governmental organization, and at least 40 percent of the units are occupied by persons or families having incomes of 60 percent or less of the median income, you may exclude 25 percent of the capital gain from Missouri tax. However, the buyer of the property must agree to preserve or increase the low income occupancy of the project. To use this exclusion, enter 25 percent of the capital gain reported on your Federal Form 1040 or 1040-SR. Attach a copy of your Federal Form 1040 or 1040-SR (pages 1 and 2) and Sales of Business Property (Federal Form 4797).

Family Development Account. A family development account holder may subtract the amount of annual deposits made to the account (not to exceed $2,000). Approved withdrawals from the family development account are also exempt from state tax. Interest earned by a family development account is exempt from state taxation and may be subtracted from an account holder’s federal adjusted gross income. Any money withdrawn for an unapproved use is subject to tax. Attach proper certification and a copy of your Form 1099.

Federally Taxable - Missouri Exempt Obligations. Income from any bond issued by the Missouri Higher Education Loan Authority (MOHELA), including interest or proceeds resulting from the sale of the bond, is exempt from Missouri tax. Enter the amount of such income included in federal adjusted gross income on Line 10.

Condemnation of Property. If you included in your Federal Adjusted Gross Income any gain arising from compulsory or involuntary conversion of property as a result of condemnation or the imminence thereof, you may exclude that gain from Missouri tax. Attach a copy of your Federal Form 1040 or 1040-SR, Schedule D, and Form 4797.

Employee Stock Ownership Plan (ESOP) Capital Gain Deduction. Enter 50 percent of the net capital gain from the sale or exchange of employer securities of a Missouri corporation to a qualified Missouri employee stock ownership plan if, upon completion of the transaction, the qualified Missouri employee stock ownership plan owns at least 30 percent of all outstanding employer securities issued by the Missouri corporation. Attach Form(s) 1099 and Beneficiary’s Share of Income, Deductions, Credits, etc. (Schedule K-1).

Disallowed Business Income Expenses. If your deduction for business interest expenses were limited under Subsection 163(j) of the Internal Revenue Code, enter the disallowed amount. Attach a copy of your Federal Form 8990. 

EXEMPT CONTRIBUTIONS MADE TO A QUALIFIED 529 PLAN The state of Missouri allows a subtraction from federal adjusted gross income for the amount of annual contributions made to the Missouri Tuition Program (MOST), or any other qualified 529 plan.  The maximum annual exempt contribution is $8,000 for single individuals or $16,000 for married couples filing a combined return. If you contributed to MOST, or any other qualified 529 plan and are claiming the subtraction on your Missouri income tax return, please attach one of the following with your return: • Statement from program manager showing contribution in the name of the individual claiming the subtraction, • Bank statements reporting/verifying the contribution date and contribution amount, • Copies of canceled checks, • Other supporting documentation verifying the name of the individual who contributed to the MOST 529 account, contribution dates, and contribution amounts. The documentation verifying contributions must be in the name of the individual claiming the subtraction.

QUALIFIED HEALTH INSURANCE PREMIUMS Enter the amount you paid for health insurance premiums, not to exceed your federal taxable income. Do not include any pre-tax premiums paid, any premiums excluded from federal taxable income, or any long term care insurance premiums. Use the worksheet on page 36 to determine your allowable subtraction.

DEPRECIATION ADJUSTMENT If you purchased an asset between July 1, 2002 and June 30, 2003, and you elected to use the 30 percent depreciation on your federal return, you may be able to subtract a portion of the depreciation. Enter the additional depreciation created by the Job Creation and Worker Assistance Act previously added back in prior years to the extent allowable by Section 143.121, RSMo. This amount is computed by figuring the allowable depreciation prior to the Job Creation and Worker Assistance Act less the depreciation taken on your federal return. If you have previously taken an addition modification for a qualifying property, but have sold or disposed of the property during the taxable year, select the box on Line 14 and take a subtraction for the amount not previously recovered. Visit dor.mo.gov/pdf/ depreciation_examples.pdf for more information and examples.

EXEMPT CONTRIBUTION MADE TO A QUALIFIED ACHIEVING A BETTER LIFE EXPERIENCE PROGRAM (ABLE) The State of Missouri allows a subtraction from federal adjusted gross income for the amount of annual contributions made to the Achieving a Better Life Experience Program (ABLE). This plan is administered by the Missouri Achieving a Better Life Experience Board. The maximum annual exempt contribution is $8,000 for single individuals or $16,000 for married couples filing a combined return. If you contributed to ABLE and are claiming the subtraction on your Missouri income tax return, please attach one of the following with your return: • Statement from program manager showing contribution in the name of the individual claiming the subtraction, • Bank statements reporting/verifying the contribution date and contribution amount, • Copies of canceled checks, Federal From 5498-QA, or • Other supporting documentation verifying the name of the individual who contributed to the MOST 529 account, contribution dates, and contribution amounts. The documentation verifying contributions must be in the name of the individual claiming the subtraction.

AGRICULTURE DISASTER RELIEF Enter the amount of payment received from a program that provides compensation to agricultural producers that have suffered a loss as a result of a disaster or emergency. This amount must be included in your Federal Adjusted Gross Income. Attach a copy of the Form 1099, as well as a Federal Schedule F and Federal Schedule K-1 if applicable, indicating the payment amount.

BUSINESS INCOME DEDUCTION The State of Missouri allows a subtraction from federal adjusted gross income in the amount of 10 percent for Missouri Source Business Deductions. Complete the worksheet below only if you have Missouri source income and are claiming a Business Income Deduction. Please provide the Federal Form 1040 or Federal Form 1040-SR and all applicable schedule(s) for verification.